The Dynamics of Inflation and its Impact on the Nigerian Economy: 1960 – 2012: An Empirical Analysis

Abstract

This study is conducted with the main objective of investigating the dynamics of inflation and its impact on the Nigerian economy between 1960 – 2012. It employed an Augmented Dickey – Fuller technique to testing for stationarity of the time series data and the Granger – Causality model to detecting the direction of long – run relationship between the consumer price index (CPI) as proxy for inflation and real gross domestic product (RGDP) as proxy for economic growth. The preliminary regressions results shows a statistically significant positive relationship between consumer price index (CPI) and real gross domestic product (RGDP) for the period under investigation. The results of the unit not test shows that all the variables were stationary at second differencing while the cointegration results reveals that causality runs from inflation to economic growth and not the other way round. The policy implication of this finding is that economy can only grow when individuals consumes those commodities that were produced within the economy. It conclude that the level of output has to be increased continuously to guarantee high mass consumption which will in-turn result in low and stable prices to ensure sustainable development.

Keywords: Inflation, Economic Growth, Stationarity, Causality